How inflation is affecting the insurance industry

October 5, 2022 10:59 AM

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Like many facets of daily life, inflation is also impacting the insurance industry. A rise in premium costs is leading to increased insurance shopping among policyholders, with more interest in telematics to lower insurance costs. Claims costs are also going up with supply chain and inflation pressures.

Read our roundup to learn more about how inflation is affecting the insurance industry and some potential solutions.

David Paul Morris/Bloomberg

Insurance quote rates jump 11.8% across US, JD Power

A dramatic increase in the cost of insurance in the past year, driven by inflation, is impacting customer loyalty, with an 11.8% rise in insurance quote rates and 3.6% of consumers switching insurance companies from Q1 to Q2, according to a new study by JD Power.

The survey indicates that the primary reason for consumers changing firms is competitive pricing from cost-conscious companies like Geico rather than comprehensive coverage or other factors from insurers like USAA.

Not surprisingly, the competition to lure customers away from rival firms is fierce. "Most insurers give you longevity discounts if you've been a customer for a long time," says Martin Ellingsworth, executive managing director at JD Power. "Now, companies are coming up with anti-retention discounts."

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Insurance quote rates jump 11.8% across US, JD Power

Inflation increases auto telematics adoption, TransUnion

With auto insurance costs on the rise, caused by economic inflation, consumers looking to offset higher prices are turning towards auto telematics policies, which monitor driving habits and offer reduced premiums in return for good practices behind the wheel, according to a TransUnion report.

"The industry is kind of ripe for this," says Michelle Jackson, senior director of TransUnion's personal property and casualty insurance business. "Prices are going up across the board and telematics have been in the market as a way to potentially offset your insurance premium for good behavior and good driving."

The cost of auto insurance across the states is rising at a rate of 4.3% on average, and as much as 20% in some states, such as Arizona, Georgia and Texas. Telematics-based policies offer consumers a way to pay less for good driving.

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Inflation increases auto telematics adoption, TransUnion

Inflation in insurance claims expected to be moderate, Willis Towers Watson

Customers can expect to pay moderately more for their insurance in 26 out 33 lines of coverage, due to the Ukraine-Russia war, economic inflation and increased interest rates, says the WTW Insurance Marketplace Realities 2022 Spring Update.

"Much could change in the next six to 12 months," says Jon Drummond, senior editor of insurance marketplace realities and head of broking at WTW. "Disruption and uncertainty are the watchwords of the day. But in our world there's another word: resilience."

While rates for certain lines, such as D&O, may decrease, cyber rates will continue to rise and "buyers will still be paying more for their insurance in most cases," the report states.

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Inflation in insurance claims expected to be moderate, Willis Towers Watson

Insurance, insurtech M&A activity not slowing down

Mergers and acquisitions in the insurance industry, which have seen a 40% increase year over year through the end of 2021, will continue to grow in 2022 and beyond, despite higher interest rates and rising inflation, according to Ernst Renner, partner and head of U.S. insurance at Capco.

The combination of interest rate increases and inflationary pressures "will be a wild card in the year to come," says Renner. "Higher interest rates frees cash flow and allows for the ability to work strategically and execute on an inorganic growth strategy."

Insurance firms will target opportunities to extend distribution, pursue investment growth, increase product diversity and add specialty firms such as insurtechs. "This will be a balancing act," says Renner, "but I would still say [M&A] activity will be rigorous this year."

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Insurance, insurtech M&A activity not slowing down?

Inflation takes the wind out of insurance shopping: TransUnion

Shopping for both auto insurance and property insurance fell significantly last year compared to the previous year, by 12.5% and 3.4% respectively, due to the impact of inflation on auto and home prices, according to TransUnion's Personal Lines Insurance Shopping Report.

High prices and low inventory for homes and autos are a major deterrent for consumers making these big purchases and hence shopping for insurance. As a result, carriers are turning to usage-based insurance products to counter inflation.

"With consumers looking to save money in an environment of rising costs, UBI's discounts could be resonant and drive some shopping behavior," says Mark McElroy, EVP and head of TransUnion's insurance business.

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Inflation takes the wind out of insurance shopping: TransUnion

4 insurance industry challenges, and four digital solutions

The insurance industry has weathered a significant storm in recent times, from a global pandemic to an increase in cyber attacks.

While there are fewer dark clouds on the horizon, major concerns still exist, including inflation running above 6% and climate-related severe weather events increasing in number and scale.

To counteract these challenges, insurance companies are pursuing greater innovation and exploring the latest digital solutions to position themselves to find future success.

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4 insurance industry challenges, and four digital solutions